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Is SPDR S&P Oil & Gas Exploration & Production ETF (XOP) a Strong ETF Right Now?

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Launched on 06/19/2006, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) is a smart beta exchange traded fund offering broad exposure to the Energy ETFs category of the market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

XOP is managed by State Street Global Advisors, and this fund has amassed over $4.37 billion, which makes it one of the largest ETFs in the Energy ETFs. Before fees and expenses, XOP seeks to match the performance of the S&P Oil & Gas Exploration & Production Select Industry Index.

The S&P Oil & Gas Exploration & Production Select Industry Index represents the oil and gas exploration and production sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Oil & Gas Exploration Index is a modified equal weight index.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

Annual operating expenses for XOP are 0.35%, which makes it one of the least expensive products in the space.

XOP's 12-month trailing dividend yield is 1.28%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

XOP's heaviest allocation is in the Energy sector, which is about 100% of the portfolio.

Taking into account individual holdings, Callon Petroleum Company accounts for about 2.98% of the fund's total assets, followed by Sm Energy Company (SM - Free Report) and Occidental Petroleum Corporation (OXY - Free Report) .

Its top 10 holdings account for approximately 25.12% of XOP's total assets under management.

Performance and Risk

The ETF has added about 80.73% and is up about 151.49% so far this year and in the past one year (as of 10/22/2021), respectively. XOP has traded between $39.65 and $107.96 during this last 52-week period.

The fund has a beta of 2.35 and standard deviation of 55.30% for the trailing three-year period, which makes XOP a high risk choice in this particular space. With about 57 holdings, it effectively diversifies company-specific risk.

Alternatives

SPDR S&P Oil & Gas Exploration & Production ETF is a reasonable option for investors seeking to outperform the Energy ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) tracks Dynamic Energy Exploration & Production Intellidex Index and the iShares U.S. Oil & Gas Exploration & Production ETF (IEO - Free Report) tracks Dow Jones U.S. Select Oil Exploration & Production Index. Invesco Dynamic Energy Exploration & Production ETF has $129.92 million in assets, iShares U.S. Oil & Gas Exploration & Production ETF has $332.07 million. PXE has an expense ratio of 0.63% and IEO charges 0.42%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Energy ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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